What is commonhold?

Most of us will have come across the terms “freehold” and “leasehold”, but due to the relative scarcity of commonhold properties, very few can claim to be familiar with the phrase “commonhold”. Below we look at what this form of tenure means and why we shouldn’t necessarily shy away from it.

How does commonhold work?

The commonhold regime came into force in 2004 under Part 1 of the Commonhold and Leasehold Reform Act 2002. This effectively introduced commonhold as a new form of freehold ownership.

These provisions were primarily designed to assist tenants of residential leasehold flats – ie; those with shared services and shared common parts such as hallways, stairwells and lifts – although commonhold can be equally useful in commercial or mixed-use developments where shared facilities exist.

Under a commonhold development, each individual property owner will own the freehold to their flat, office or shop, while the freehold to the structure and shared parts will be owned by what’s known as a “commonhold association”.

Each individual property owner will be a member of the commonhold association – a company limited by guarantee, with the details decided by the association’s prescribed form of memorandum and articles – and each member will be allocated voting rights.

Each commonhold association will also have a “commonhold community statement”, which specifies the properties within the residential, commercial or mixed-use development, and the rules of that commonhold.

Typically, each owner will be responsible for the maintenance of their own unit, with the commonhold association responsible for the repair of the structure and common parts. Each individual owner will also be liable to contribute towards the expenses of the commonhold association, similar to the service charge payable under the leasehold regime, with provision for a reserve fund.

What are the benefits of commonhold?

Since its introduction, the use of commonhold has been implemented mainly in new developments – although technically an existing leasehold development can be converted into a commonhold scheme – such that there are still only a limited number of commonhold properties across England and Wales.

This does not mean, however, that you should shy away from purchasing a commonhold property, not least because there are several benefits to owning a property under this form of tenure.

One of the main benefits of owning a commonhold property is that you will have the opportunity to actively take part in how the building is run, with the ability to take steps to effectively enforce any breach by other property owners.

Further, in addition to having an increased level of involvement in your own commonhold community, the commonhold regime also addresses one of the main problems currently encountered by tenants of residential leasehold developments, namely the diminishing value of leasehold property as an asset.

In contrast to leasehold, there is no limit on how long you can own a commonhold property. A commonhold owner will instead own the freehold interest to their property that will not depreciate towards the end of any lease term. As such, commonhold properties may attract a premium as a result.

What are the drawbacks of commonhold?

Needless to say, the commonhold regime is not without its own problems, not least that it is up to the members of the commonhold association to enforce the rules under the commonhold community statement, easily leading to disharmony amongst residents.

There is also no requirement for the commonhold assessment – namely, the estimate of the overall costs of managing, maintaining, repairing and insuring the building – to be reasonable, whereby individual property owners will not have the benefit of any statutory protection over service charges available to residential leasehold tenants.

Accordingly, if you are thinking of buying a commonhold property, you should always seek expert legal advice so that you can make an informed decision about the pros and cons when buying against the traditional leasehold.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

 

 

 

How to avoid an inheritance tax investigation

Notwithstanding the emotional and financial difficulties that you may find yourself facing following the death of a loved one, the taxman may still elect to investigate the inheritance tax liability on the deceased’s estate – and issue hefty penalties where payment is found to have fallen short of what is due.

Needless to say, it is vital that you get the right advice at the right time. Below we look at how it all works and the importance of securing expert legal advice long before the taxman takes a look at what is owed.

How does inheritance tax work? 

As the law currently stands, we are each entitled to an inheritance tax allowance of £325,000. This is known as the inheritance tax nil-rate band. The net effect is that you are able to pass on to your loved ones up to £325,000 tax-free.

For anything over and above this threshold, a standard inheritance tax rate of 40% will apply to the remainder of the estate. For example, if an estate is valued at £500,000, the tax bill will be £70,000, ie; 40% of £175,000, the difference between the value of the estate and the nil-rate band of £325,000.

However, since April 2017, where you are leaving property to a family member you may also be entitled to a residence nil-rate band. This will mean you will pay even less inheritance tax. For 2019-2020, this new allowance rose to £150,000. It will rise by £25,000 again in April 2020, to a total of £175,000.

In most cases, married couples and civil partners are also allowed to pass their possessions and assets to each other tax-free. As such, by using both tax-free allowances, this can effectively double the amount a surviving partner can leave behind to their loved ones without incurring any inheritance tax liability.

What is likely to cause the taxman to investigate?

Although the available tax allowances mean that many estates will not be subject to any inheritance tax whatsoever, there are plenty of instances where the value of an estate will still exceed the relevant thresholds.

Furthermore, following the recent legislative changes that saw the introduction of the new residence nil-rate band, HMRC is increasingly targeting estates it believes have undervalued residential property to avoid the payment of IHT.

Statistics show that almost a quarter of estates are investigated over IHT. For the tax year 2018 to 2019, HMRC opened 5,537 inheritance tax investigations, equating to almost one in four of the 22,000 estates on which the tax fell due.

How do I avoid an inheritance tax investigation?

There is no guaranteed way of avoiding an inheritance tax investigation. That said, you can minimise the risk of this happening by ensuring that you instruct an expert to deal with the legalities of the estate.

The legislation relating to inheritance tax rates, not least the rules for the new residence nil-rate band can be complex. Moreover, even where there is nothing to pay, you may still be required to fill in complicated tax forms to notify HMRC.

By seeking expert advice, you can have the peace of mind that the estate will be administered correctly, and an investigation by the taxman is far less likely.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

BSG nominated for Award

Lancashire law firm BSG Solicitors has been shortlisted at the British Wills and Probate Awards in the category of Solicitor Firm of the Year – North.

The awards have been introduced to highlight achievement and recognise the successes of those in the Wills and Probate sector. Now in their second year, the ceremony will be hosted by broadcaster and journalist Jenny Bond at The Belfry in Birmingham on 17th October 2019.

Rebecca Lauder, Partner at BSG Solicitors commented:

“I’m thrilled that the work of our private client team has been recognised by the judging panel at the British Wills & Probate Awards. The firm has changed significantly over the last few years and we have focused on marketing the practice, building our presence online and improving our IT infrastructure and security.

We have already beaten some tough competition to be shortlisted and we’ll be keeping our fingers crossed at the awards ceremony.”